Leases

9 Months Ended

Oct. 29, 2022

Leases

Leases

9. Leases

The Company leases its retail store locations and certain office space and equipment. Leases for store locations are typically for a term of five years with options to extend for one or more five-year periods. The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized. Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the condensed consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date.

In April 2022, the Company completed a sale-leaseback of its distribution center in Darlington, South Carolina for net proceeds of approximately $45.5 million. The total annual rent for this property starts at approximately $3.2 million with increases of 2% annually over the 20-year lease term. The net proceeds included $5.6 million of advance funding for a capital improvement project that will be amortized over the 20-year lease term. The lease contains the option to extend for six additional periods of five years each. The transaction met the requirements for sale-leaseback accounting, resulting in a gain of approximately $34.9 million on the condensed consolidated statements of operations. The related land and property were removed from property and equipment, and an operating lease right-of-use asset and lease liability of $42.6 million and $37.0 million, respectively, were recorded in the condensed consolidated balance sheets.

In September 2022, the Company completed a sale-leaseback of its distribution center in Roland, Oklahoma for net proceeds of approximately $35.6 million. The total annual rent for this property starts at approximately $2.7 million with increases of 2% annually over the 15-year lease term. The net proceeds included $0.6 million of advance funding for a capital improvement project that will be amortized over the 15-year lease term. The lease contains the option to extend for six additional periods of five years each. The transaction met the requirements for sale-leaseback accounting, resulting in a gain of approximately $29.2 million on the condensed consolidated statements of operations. The related land and property were removed from property and equipment, and an operating lease right-of-use asset and lease liability of $29.5 million and $25.8 million, respectively, were recorded in the condensed consolidated balance sheets.

Total lease cost is comprised of operating lease costs, short-term lease costs and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Lease costs consisted of the following (in thousands):

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Operating lease cost	$	15,443	$	13,320	$	44,326	$	39,384
Variable lease cost		2,510		2,685		7,423		8,264
Short term lease cost		343		213		1,062		775
Total lease cost	$	18,296	$	16,218	$	52,811	$	48,423

Future minimum lease payments as of October 29, 2022 are as follows (in thousands):

Fiscal Year	Lease Costs
Remainder of 2022	$	11,285
2023		61,742
2024		55,603
2025		45,005
2026		34,443
Thereafter		141,055
Total future minimum lease payments		349,133
Less: imputed interest		(78,409)	(1)
Total present value of lease liabilities	$	270,724	(2)

(1) Calculated using the discount rate for each lease.

(2) Includes short-term and long-term portions of operating lease liabilities.

Supplemental cash flows and other information related to operating leases are as follows (in thousands, except for weighted average amounts):

	Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021
Cash paid for operating leases	$	44,754	$	42,315
Right of use assets obtained in exchange for new operating lease liabilities	$	95,809	$	54,263
Weighted average remaining lease term (years) - operating leases		8.11		5.31
Weighted average discount rate - operating leases		4.38%		2.89%